I have a knee jerk reaction against posts like this, mostly because of the reference to $4 cups of coffee.
While the point is true, I think your time is best spent worrying about other things.
90% of money problems seem to come from a few things:
* Expensive cars - bought with debt.
* Expensive housing - again bought with debt.
* Expensive schooling - even more debt.
I've never bought (pun intended) the argument that dining out in any form (including coffee) even comes close to these other items. Even if you're eating out 3-5 nights per week, it's just not expensive enough. I guess if you're always feeding a family of 5 and buying expensive bottles of wine while you eat, then maybe.
I also think that time spent worrying about trivial stuff like coffee would be better spent trying to make more money.
> 90% of money problems seem to come from a few things: * Expensive cars - bought with debt. * Expensive housing - again bought with debt. * Expensive schooling - even more debt.
Nick Maggiulli made a good observation in a 2020 weblog post:
> All the expense tracking and goal setting in the world cannot make up for an insufficient balance.
The bottom 40-50% of US households can either barely or not-at-all cover the basic necessities: housing, food, transportation, healthcare. Note that this doesn’t include any money for education, clothing, or any form of entertainment.
> That’s why the biggest lie in personal finance is that you can be rich if you just cut your spending. And the financial media feeds this lie by telling you to stop spending $5 a day on coffee so that you can become a millionaire.
[…]
> Instead of trying to convince everyone that they can be rich, we should be trying to convince everyone that they can be not poor. Now that would be a start to undoing the biggest lie in personal finance.
It depends on whether you see a $500 ($4 * 21 business days * 12 months - exaggerated $500 for drinking coffee at home) a year in saving as big of not. For some people it can be an emergency fund, for others it's 2-3 expensive dinners for 2.
The issue is that you also mentioned dining in general, which takes that $1k of coffee to a completely level.
Bottom line is drinking coffee at home and cooking save you a lot of money.
Cooking definitely do. My groceries bill is around 150€/month. You'd need about 750€/month to eat out twice a day. The difference is 7200€/year, a pretty hefty chunk of your post-tax income.
Just out of curiosity how and what do you eat to fit in 5 Euros a day?
I'm thrifty as well but that is stretching it.
I mean, I eat meat and only buy organic free range stuff if I can, which is of course, more expensive, but as long as I make a dev salary, why would I eat lower quality stuff to save a few bucks if I can afford the best quality?
I feel like when it comes to what you put inside your body you should not make compromises if you can. There are other areas in your life you can save money(car, subscription services, eating out, fancy clothes), but food is not one of them, as long as you can afford it.
>I eat quite well on 5€ a day. Eating out would cost me about 25€ a day. That's a 7k€ per year difference.
But the thing is, a lot of people could easily make additional 7k€ if they switched jobs / renegotiated their salary / tried out other ways to make more money. Especially if you enjoy eating out from time to time, it's probably not worth the effort to try and save a few thousand not doing it when there are other, much more impactful choices to be made.
> - Health insurance is another big expense. At one point I paid more for insurance than rent, because I'm self-employed.
Health insurance is also really expensive as an employee, but people dont notice because half of the cost is completely hidden for them ("paid" by the employer) and the other half also never reaches their bank account but is on listed in the monthly payroll notification.
I think quality food is a no-brainer, but convenience eating, like you calculated, is an easy bad habit to develop. If you're deliberate about when, where, and why you're eating out, than it seems unlikely to be a problem though.
I'm curious, what role does health insurance play in Germany? I'm been curious about the prospect of at least temporarily living in Germany (from Canada), but don't have a great sense of that yet. Here we have socialized medical, but you'd get insurance to cover out of country emergencies, regular cost of drugs, and dental, among other things.
Unless you’re really special, your grocery bills at the end of the year will dominate your takeout and restaurants bills combined.
This was an eye opener to me, after meticulously tracking my finances for a year.
There’s two takeaways. (1) on the days where you don’t feel like cooking, do not feel bad about ordering take out or dining out. (2) consider how you can minmax your staple grocery items, by buying in bulk, joining a food co-op. Etc
You win a lot more by shaving dimes off every pound of oatmeal, integrated over a lifetime. And it’s recurring returns on a one-time investment of finding the best source in your neighborhood.
Buy the coffee every once in a while if it brings you joy. Everything in moderation, of course.
> Unless you’re really special, your grocery bills at the end of the year will dominate your takeout and restaurants bills combined.
You'd be surprised at how much a lot of people eat out. As of 2016, total spending among all Americans was higher on restaurants than on groceries. The average American (although not necessarily the median one) spends more on restaurants than groceries.
> your grocery bills at the end of the year will dominate your takeout and restaurants bills combined.
Only if days you cook for yourself (heavily) dominate days you order a takeaway.
Also, 'groceries' probably accounts for a lot more alcohol (assuming you drink of course!) really tilting the balance. Not least because if you order a takeaway you're probably still drinking something from your grocery order.
> your grocery bills at the end of the year will dominate your takeout and restaurants bills combined
I spend 150€/month on groceries. Reducing that would be really difficult, and involve changing my diet and buying cheaper ingredients. Even then, I wouldn't save enough to make a difference.
Like any problem you should always start by tackling the big low-hanging fruit. Then work your way up as far as you can be bothered.
For most people the biggest thing is a car. If you can not own a car at all then you're laughing. But if you have to then I recommend buying old, undesirable cars from good brands like Honda, Toyota or Ford, but always research the model first as every brand has made stinkers over the years. You can drive these cars until they are scrap and pay a fraction in depreciation that you would have on a newer or more desirable car.
Of course, if you want to own a car then by all means do it. But just be honest with yourself that it's not an essential thing and you'll be making sacrifices elsewhere for it.
It's totally possible that the lowest hanging fruit on some people's trees is things like coffee. But the important thing is to record your expenses and budget so you can identify what the lowest hanging fruit it.
Also, just because something is a bigger expense, doesn't mean it's a lower hanging fruit. Most people spend most of their money on housing. But you need a roof over your head. You don't need coffee from your local hipster outlet.
I agree. I retired at 35 by saving 90% of what I made and lucked into living in Toronto at the beginning of the property ladder in the 90s. Like a diet, it's more about the determination to live with what seems like privation but really it is just being free of all kinds of crap - furniture, creams, soaps, appliances, clothes, decor - that provide social acceptance but ends in indentured servitude.
> I've never bought (pun intended) the argument that dining out in any form (including coffee) even comes close to these other items.
Well it's easy to know if that argument holds true or not... just track your expenses. It holds true for me.[1] Once I started WFH during COVID my weekly expenses got in much better shape.
[1] Edit: combined lunch + coffee + snacks during the work week were equivalent to about 15% of my rent (and rent is high where I live). I did not include weekend dining out with friends/family in that figure, or it would have been even higher. (The reason is that during the work week I always get food or coffee from the same merchants so it was easier to track, but during weekend it varies more).
Edit 2: solution was to pack lunch/snacks, and use the office coffee maker. Packed lunch is less than half of the previous amount, and office coffee is free. Now the figure is about 5% of my rent.
Edit 3: a positive side effect is that my snacks started consisting more of things like an apple or an orange, rather than the crappy processed-food sugary snacks I was buying at the cafe.
Haha in the original draft of this post I had "make more money/work on yourself" as one of the points but took it out - most people seem to know the big stuff like don't make big purchases you can't afford. What seems to be less common knowledge amongst my friends at least is how much little things like eating out often has a financial impact on them since it's harder to see. We aren't programmed to understand compounding very well so I wanted to highlight that in the post somehow. This could just be my very young self talking since I haven't seen very many different financial profiles out there.
Edits I'm with you totally. It doesn't feel right or valid. why worry about a coffee? ( I don't!). But that feeling could be worth challenging...
If there's 2 of you and you eat out 5 times a week for the length of time you would own a car... then it might be equivalent? There's that old paradoxical saying about how the rich are rich because they don't buy anything.
That's a good point. The only thing I can think of adding is that in some markets, housing is just plain expensive, and people don't have as much wiggle room there unless they can make more relative to lower housing costs in some other area and are willing/able to move there.
Don’t forget the cable (or cord-cutting channel), mobile, game, music, news, and magazine subscription bills, to which now we have to add apps. Large ones can often be cut to 1/10th by rethinking, switching, etc.
I treat Netflix/Primevideo/Hulu & friends like this. It takes a bit of thinking but I usually have only one subscription at a time and cancel as soon as I close in on the end of whatever show I'm watching, then re-subscribe to whatever I need to. Some services (not necessarily the streaming ones) allow you to re-trial after a few months (love that), others will cut your subscription fee if you try to leave after a few months. So try to leave after a month or so anyway, even if you don't want to, then take the better offer.
Yea, I live in the US and I came from a poor immigrant family. The arguement about the true price of your 4 dollar coffee is lost on people. That's why poor immigrants typically rise in economic classes in the US and the folks who defend their poor purchasing habits stay locked in.
You buying the occasional overpriced, poorly made coffee doesn't hurt in the grand scheme of things. The compounding habit does. For whatever reason, a majority of Anglo saxons and anglo culture just dont understand compound interest in general. Maybe it's because western culture adopted Protestant ideals more than they think. My half jewish, half catholic background doesn't jive well I guess. Anyways, let's get into examples, shall we? And no, I won't get into the Lamborghini/Ferrari endgame. Italian cars are crappy anyways. They catch on fire too often.
3 dollar coffees a month, that's 90 bucks. I go through about a bag of coffee a month, at $15 a bag of BRCC, I only save 75 a month. That's only 900 a year extra I have by being slightly snobbish about my coffee routine (french press or cowboy coffee it). Let's also do your eating out example, because habits are not in a vacuum, they're holistic and systemic. Most things I would want to eat at a restaurant are 15 to 20 bucks. I won't get into a decent steak or seafood because that's too easy to prove my point. Let's do, I dont know, chicken alfredo, I made that a week ago while babysitting my buddies kids. I spent like 25 bucks, but that included popcorn and icecream. So 20? This fed a toddler, 6 yr old, preteen and my own fat ass, with enough left overs for lunch the next day for everyone. If we went out, that's 15 for me and then 15 for the preteen and then another 15 to split between the younger ones. So 45 bucks. 25 dollar savings. However, there would have been no left overs. So let's say an extra 20 in savings, 45. Alright, to get just me on the savings, I'm thinking about 6 adult portions. 7.50 in savings per meal for myself when I want a fully proper dinner on average. You say 3-5 times you eat out a week. 4 for an easy average. That's 30 a week, 120 a month, 1440 a year. My average savings for not eating out and drinking crappy coffee is $2,340 a year as a single guy. $195 a month. Thats the advertised payment of a new Jetta. Choosing to be at the whim of someone who brews coffee like shit and people who over charge for super simple meals or doing things myself.
Let's nix the car. Let's think opportunity cost. Are you really maximizing your extra 10 minutes saved ordering dinner? Are you reading earnings reports or geopolitical negotiations? Maybe the latest white paper for next 5 minute programming fad? No. You're watching netflix. Stfu. I watch netflix and cook. Well, that and audible and curiosity stream. I also buy lots of books. And I do the occasional masterclass and random course online.
That extra 2k a year isnt enough to be a market mover. It is however enough to invest in yourself pretty well. Which goes all the way back to my immigrant comment. Your philosophy is investing in the market. That's dumb as hell especially when you're young. My philosophy, and most immigrant families that pinch pennies, is about investing in yourself. I think most people agree that a person's greatest investment is themselves, not outside endeavours. So yea, is that overpriced cup of coffee worth not investing in yourself?
This list leaves off the most important thing -- emergency fund. You should have enough to cover expenses for a sudden loss of employment (3 months is usually recommended, but in this climate I wouldn't feel comfortable with anything less than 6). And esp. if you own a home, you need enough to cover things that pop up without depleting your emergency fund too much. For example I had to spend 9k recently to have a sewer line replaced in the yard.
Yes, you have better return on investments if you pay off that 20% interest credit card. But if you become unemployed, it is better to be able to have that fund so you can keep your house and the lights on.
Once you have more than about two years worth of salary invested in a brokerage account, you don't need a cash emergency fund anymore. You can withdraw cash from a brokerage account instantly, up to a large percentage of your total balance, without selling anything.
This creates a margin loan, and then at your leisure you can sell your investments to pay the loan, only paying a few days worth of interest at most. Or you can keep the loan. The rates are far better than credit cards and there's no minimum payment or required repayment schedule. Interactive Brokers' current margin rate is 1.57%!
1.57% is a lot compared to the ease of just leaving a couple grand in a high-yield savings account. Maybe it's just me but it feels wrong to take out a loan against my portfolio everytime I have to replace my MacBook.
You can withdraw on margin?! I suppose in a way that's arguably lower risk, but still seems weird. Also think that's quite nation/broker specific, pretty sure that's not an option with T212 or IG in the UK (which provide margin for trading CFDs and the latter limited options too).
Also shouldn't discount overdrafts, pretty sure mine (as in, available to me) is <1.57% equivalent, and 'arranged' I believe they tend to be cheaper or at least much bigger.
Sitting on tens of thousands of dollars of cash (six months of income!) in a zero interest rate environment is a mistake that really compounds over the years -- to the point of a few $100k in lost appreciation over your career.
Equities are no longer hard to turn into cash in an emergency. You can pull money out of your investment account the same day using a debit card if need be, no need to even sell your equities.
Keeping access to credit, but not using it unless it's needed, is the better plan. But after several years of saving you won't need it anyway.
Emergency funds are for emergencies, and you never know when an emergency is going to happen. Stock market tanks and you lose your job, bet having all your money in stocks will feel real smart at that point.
It’s about balancing risk management and wealth. That balance is going to be different for everyone, but you always need to be a little cautious.
It's only potentially outdated advice for people that are already financially sound, have a large amount invested, and understand the risks. "Don't keep an emergency fund, just sell your stocks or use credit" is really bad advice for people trying to get ahead for the first time.
If you lost your job April 2020 and all your spare cash was in stocks you'd be forced to eat a massive loss. Given a downturn makes unemployment more likely this isn't an improbable scenario.
I think emergency often means the next financial crisis (at least statistically). During which, you lose your job but also your access to credit. As worsening credit conditions are often the cause of crisis.
Other than that you're right. Maintaining an emergency fund is expensive in term of opportunity cost. Like the cost of any insurance. There is no free lunch.
If it’s only for an emergency, the interest rate doesn’t matter much. Many banks and credit unions offer 90% or even 100% LTV HELOCs at a rate a couple percent higher than the usual 80% LTV.
Yes, this is very true. Emergency funds will make your life so much less stressful.
I will say that his recommendation to buy in bulk is in some way an emergency fund (or an aspect of it) because you're saving money on things you know you'll buy in the future.
One thing I did when I lost a job was move some of my retirement account (roth IRA) to money market funds (from short term bonds). Basically moving some of the bond portion of my retirement from slightly risky to not risky/cash.
Roth IRAs let you pull out your contribution. This was basically to augment my emergency fund, just in case finding the right new job took longer than I thought. (I was lucky, it didn't, and I was able to convert the money market funds back to short term bonds).
Not a fan of pulling from retirement, but if I had to, better to take from the tax penalty free, stable portion of it.
You're a 100% right - having an emergency fund is extremely important and I'd like to add an appendix that mentions it - do you have any good resources for learning about what goes in to building one?
I didn't comment on it because I'm living at home right now and am young/commitment-free enough to move back in with my parents if I ever need to - I don't have one so I feel I'm not qualified to discuss it.
It's simply just putting money into a checking or savings account that you use to cover unexpected expenses. The amount varies by your life situation and risk tolerance, but a couple months salary is a good start.
Think of the sort of "adult expenses" your parents have - refrigerator failed and too expensive to repair, need to buy a new one - that will be $2,000, right now. My teeth need to be fixed - that will be $3,000. It's winter and the furnace broke - that will be $7,000. You want to be able to have the money on hand to deal with those situations. Those were not random examples - those are things that have come up for me in the last two years
You probably shouldn't have more than a few hundred dollars in an emergency fund if you're paying off high interest loans (10%+)
Typically it’s as simple as saving cash enough to cover 3-6 months or unexpected expenses. Fixed income investments are almost so low as to be ignorable but you can put it in a high yield online savings account. The key is for it to be liquid.
"In our financial plan, you will never find the one staple item that every financial planner calls the cornerstone of a responsible financial plan: the emergency fund. We have none. Zilch. Nada."
https://earlyretirementnow.com/2016/05/05/emergency-fund/
If you get fired you can live off severance and liquidate some of your investments.
If you have a contract that includes severance and if you have investments then the ERN plan makes sense. If either of those things is false it’s a much shakier argument.
> Then you can hire a family member, deduct home office expenses and even if you lose money operating the business, you'll save money on taxes.
This entire sentence is “top things the IRS has seen before and will not be amused by.” Sure, you can put this stuff on your Schedule C and get more money in your refund, but just wait until the IRS audits you in 5 years and determines that your family member is not engaging in activities that make them a legitimate employee, your living room is not a home office just because you have a desk in the corner, and since you’re making continuous losses and not operating in a “businesslike manner” your ‘business’ is actually a hobby; and then sends you a bill for back taxes plus interest and penalties.
(Sure, those are all actual deductions, but if your mindset is “legal tax evasion” and not “this is a business expense” you’re probably not qualified to take them.)
100% agree, I started getting very suspicious of this article at that point, and then gave up completely when they said 30% of their assets were "invested" in virtual NBA trading cards. This is not good advice.
> Pay down any debts greater than 7% per year (7% is the average yearly return for the stock market)
Pretty poor advice imo, it's comparing a risky versus a risk-free return. Paying off a 7% interest nets you that return, guaranteed. Investing in a 7% stock market nets you that return on average, but it could be -30% that year, too. Volatility and risk requires compensation for it to simply be accepted. Where the threshold lies is hard to say, but I think it's much more sensible for example to pay off a 5% interest in lieu of investing in a volatile asset class that does 7% on average.
> If you have the space, buy products you're guaranteed to use in bulk on sale
That's true but, space comes at a cost, too. A square metre in a city costs about $6000. I'm not interested in buying 'years of supply of toilet paper' on sale and getting into the business of storage at the most premium price (residential real estate) level. Not a bad suggestion but shouldn't be in the top 50 I think, let alone as point nr 2.
Alright the rest is kinda of mediocre, not really worth going into. There's so much much better personal finance advice out there, even one-pagers out there, that this isn't really worth discussing.
> Pretty poor advice imo, it's comparing a risky versus a risk-free return. Paying off a 7% interest nets you that return, guaranteed. Investing in a 7% stock market nets you that return on average, but it could be -30% that year, too. Volatility and risk requires compensation for it to simply be accepted. Where the threshold lies is hard to say, but I think it's much more sensible for example to pay off a 5% interest in lieu of investing in a volatile asset class that does 7% on average.
You'd be right, but also consider than 7% is the real, not nominal, long-term return of the S&P500; the nominal (pre-inflation) return is 11%, and that's what you should compare to interest on debt.
That’s the view of people who have grown up during an ever rising market like the last 12 years and think that’s just the way it always is. The picture changes once there is a huge drop in the market like 2000 or 2008. Then the debt may come to haunt you. Especially if you have lost your job during that period.
This may be even fine if you have a well off dad that can support you during hard times. If you don’t have that yi7 will regret the debt for a long time.
If somebody is actually new to personal finance or investing, I would be careful with a lot of the stuff in this post. You're likely better off reading the r/personalfinance wiki, the r/financialindependence wiki (even if you're not interested in FIRE, there is a lot of extremely useful advice), and the Bogleheads wiki.
I read most of this article and this person is young and single. Even given that, there is some astoundingly bad advice in here (eg, the “I recommend 30% in crypto + individual stocks”).
I think a better analysis would be to compare their personal strategy against a baseline one: ie, if they had invested everything from the beginning (including their NBA cards!!) in a total market index fund.
I think it is fine to engage in lots of strategies, including investing in individual stocks, but that should not be included in a portfolio recommended to others.
> Get used everyday (Ex. Nice pants, laptop and phone).
> Come in between you and the ground (Ex. Mattresses, chairs, winter tires).
Lately I've been hearing from friends and marketers "you use your mattress for 8+ hours a day so you should spend $2k on it" or something ridiculous like that. But I can't help feeling that it's bad advice.
You should decide to spend money when the marginal benefit that you get out of those extra dollars is higher than some threshold, that's it.
If you spend an extra $1500 on a mattress that isn't any better than a $500 one, then you've wasted $1500, regardless of how much time you spend sleeping on it.
On the other hand, maybe it's a good idea to spend an extra few thousand dollars on safety equipment for your woodsaw that you use for your occasional weekend hobby, if it means you don't lose a finger one day.
I think this goes together with the "don't buy cheap" rule. If you spend $100 on a mattress after a year or two it'll be ruined (and probably not very comfortable to begin with), so it's better to invest say $500 (random number, I have no idea how much you should spend on a 'good enough' mattress) to get something better quality.
But yeah as you say, after a certain point it's diminishing returns. A Corolla will get you to work just as well as a Porsche, but that's not why people buy Porsches.
I may, in less experienced earlier years, have bought a needlessly semi-expensive >$1000 mattress. Even then, after sleeping on it for almost 10 years now, it has amortized pretty well. $100 a year isn't really something to worry over much, and saving half of it makes less of a difference than reducing coffee consumption for example. The cost per year still keeps falling.
Even a $2000 mattress wouldn't be a giant expense compared to frequent & more expensive discretionary spending that people casually indulge in, such as new flagship smartphones or desktop CPUs/GPUs after 2-3 years, more than a single streaming video service or (God forbid) a car if bike+transit is a viable choice in your area.
Nowadays I'd go about mattresses a little different, but in the grand scheme of things? Not even a blip.
$400 to $600 is the price Hilton/Marriott/Hyatt/IHG negotiated with Tempur Sealy and Simmons for their hotel mattresses. They come with pillow tops and don’t need to be flipped.
There's a pretty fun subreddit satirizing this mindset. Eat lentils, drive a 2003 Corolla, save every penny for retirement. https://www.reddit.com/r/PFJerk/
Also, just in case anyone needs to hear this, starting your own company is not carte blanche to deduct all your living expenses, hire your spouse, etc. There's a lot of folk beliefs around this circulating on the internet, and following such advice without doing the legwork is a good way to get yourself into hot water with the IRS, or your local equivalent.
Personally I never set up auto pay. Why? Because it hits a little harder (and you pay more attention) when you're actually typing it in every month.
Sure, there's a risk I might miss a payment and get dinged, but you're guarding against Comcast quietly raising your bill $25/mo, or not realizing how much you're truly spending on your credit card every month. Otherwise I agree with the list.
Once you have eight different things you need to pay a month it becomes way too time consuming to manually pay bills. Easier to just set up a mint account and check your finances once a month.
Also, in adverse circumstances, harm can pile up faster and higher if you have your bills set to auto-pay. In the US, banks typically charge an overdraft fee for every transaction that overdraws an account, so unless you keep a generous liquid cushion in your checking account, one mistake on anyone's part (perhaps yours, or ACH, or your payee's autopay sytem, or your employer's payroll, or your other bank, or the person who stole your debit card) could put you hundreds of dollars in the hole.
To avoid this, you need to know that you have enough at the correct time in the correct place, and if you're doing that, you might as well click through each payment yourself.
If you're in a tough spot, this also gives you the option to make partial payments against credit cards and incur some interest, which is almost universally a smarter choice than incurring an overdraft charge against your bank account.
Should have clarified I meant regular recurring priced bills power/water/internet/phone/investing.
I definitely missed it when Verizon upped my bill by $10 a month. But on the other hand I've never had a late fee and I get an hour back a month. So on net I'm positive money and time ymmv.
May I suggest auto pay with notifications? I’m a forgetful person, so this lets me avoid late charges while keeping me up to date on my payments. Most banks will let you set a threshold for transactions, above which it will send you an email or SMS alert.
Readit News
While the point is true, I think your time is best spent worrying about other things.
90% of money problems seem to come from a few things: * Expensive cars - bought with debt. * Expensive housing - again bought with debt. * Expensive schooling - even more debt.
I've never bought (pun intended) the argument that dining out in any form (including coffee) even comes close to these other items. Even if you're eating out 3-5 nights per week, it's just not expensive enough. I guess if you're always feeding a family of 5 and buying expensive bottles of wine while you eat, then maybe.
I also think that time spent worrying about trivial stuff like coffee would be better spent trying to make more money.
Nick Maggiulli made a good observation in a 2020 weblog post:
> All the expense tracking and goal setting in the world cannot make up for an insufficient balance.
* https://ofdollarsanddata.com/the-biggest-lie-in-personal-fin...
The bottom 40-50% of US households can either barely or not-at-all cover the basic necessities: housing, food, transportation, healthcare. Note that this doesn’t include any money for education, clothing, or any form of entertainment.
> That’s why the biggest lie in personal finance is that you can be rich if you just cut your spending. And the financial media feeds this lie by telling you to stop spending $5 a day on coffee so that you can become a millionaire.
[…]
> Instead of trying to convince everyone that they can be rich, we should be trying to convince everyone that they can be not poor. Now that would be a start to undoing the biggest lie in personal finance.
The issue is that you also mentioned dining in general, which takes that $1k of coffee to a completely level.
Bottom line is drinking coffee at home and cooking save you a lot of money.
- Eating out is a big expense. I eat quite well on 5€ a day. Eating out would cost me about 25€ a day. That's a 7k€ per year difference.
- Housing is a huge, but mostly unavoidable expense. Yet my rent went from 950€/month to 550€/month when I moved out of the centre.
- Health insurance is another big expense. At one point I paid more for insurance than rent, because I'm self-employed.
- The things I tend to skimp on (subscriptions, quality food) make nearly no difference.
I'm thrifty as well but that is stretching it.
I mean, I eat meat and only buy organic free range stuff if I can, which is of course, more expensive, but as long as I make a dev salary, why would I eat lower quality stuff to save a few bucks if I can afford the best quality?
I feel like when it comes to what you put inside your body you should not make compromises if you can. There are other areas in your life you can save money(car, subscription services, eating out, fancy clothes), but food is not one of them, as long as you can afford it.
But the thing is, a lot of people could easily make additional 7k€ if they switched jobs / renegotiated their salary / tried out other ways to make more money. Especially if you enjoy eating out from time to time, it's probably not worth the effort to try and save a few thousand not doing it when there are other, much more impactful choices to be made.
Health insurance is also really expensive as an employee, but people dont notice because half of the cost is completely hidden for them ("paid" by the employer) and the other half also never reaches their bank account but is on listed in the monthly payroll notification.
I'm curious, what role does health insurance play in Germany? I'm been curious about the prospect of at least temporarily living in Germany (from Canada), but don't have a great sense of that yet. Here we have socialized medical, but you'd get insurance to cover out of country emergencies, regular cost of drugs, and dental, among other things.
This was an eye opener to me, after meticulously tracking my finances for a year.
There’s two takeaways. (1) on the days where you don’t feel like cooking, do not feel bad about ordering take out or dining out. (2) consider how you can minmax your staple grocery items, by buying in bulk, joining a food co-op. Etc
You win a lot more by shaving dimes off every pound of oatmeal, integrated over a lifetime. And it’s recurring returns on a one-time investment of finding the best source in your neighborhood.
Buy the coffee every once in a while if it brings you joy. Everything in moderation, of course.
You'd be surprised at how much a lot of people eat out. As of 2016, total spending among all Americans was higher on restaurants than on groceries. The average American (although not necessarily the median one) spends more on restaurants than groceries.
Only if days you cook for yourself (heavily) dominate days you order a takeaway.
Also, 'groceries' probably accounts for a lot more alcohol (assuming you drink of course!) really tilting the balance. Not least because if you order a takeaway you're probably still drinking something from your grocery order.
I spend 150€/month on groceries. Reducing that would be really difficult, and involve changing my diet and buying cheaper ingredients. Even then, I wouldn't save enough to make a difference.
A restaurant meal is 10-15€.
For most people the biggest thing is a car. If you can not own a car at all then you're laughing. But if you have to then I recommend buying old, undesirable cars from good brands like Honda, Toyota or Ford, but always research the model first as every brand has made stinkers over the years. You can drive these cars until they are scrap and pay a fraction in depreciation that you would have on a newer or more desirable car.
Of course, if you want to own a car then by all means do it. But just be honest with yourself that it's not an essential thing and you'll be making sacrifices elsewhere for it.
It's totally possible that the lowest hanging fruit on some people's trees is things like coffee. But the important thing is to record your expenses and budget so you can identify what the lowest hanging fruit it.
Also, just because something is a bigger expense, doesn't mean it's a lower hanging fruit. Most people spend most of their money on housing. But you need a roof over your head. You don't need coffee from your local hipster outlet.
Well it's easy to know if that argument holds true or not... just track your expenses. It holds true for me.[1] Once I started WFH during COVID my weekly expenses got in much better shape.
[1] Edit: combined lunch + coffee + snacks during the work week were equivalent to about 15% of my rent (and rent is high where I live). I did not include weekend dining out with friends/family in that figure, or it would have been even higher. (The reason is that during the work week I always get food or coffee from the same merchants so it was easier to track, but during weekend it varies more).
Edit 2: solution was to pack lunch/snacks, and use the office coffee maker. Packed lunch is less than half of the previous amount, and office coffee is free. Now the figure is about 5% of my rent.
Edit 3: a positive side effect is that my snacks started consisting more of things like an apple or an orange, rather than the crappy processed-food sugary snacks I was buying at the cafe.
If there's 2 of you and you eat out 5 times a week for the length of time you would own a car... then it might be equivalent? There's that old paradoxical saying about how the rich are rich because they don't buy anything.
You buying the occasional overpriced, poorly made coffee doesn't hurt in the grand scheme of things. The compounding habit does. For whatever reason, a majority of Anglo saxons and anglo culture just dont understand compound interest in general. Maybe it's because western culture adopted Protestant ideals more than they think. My half jewish, half catholic background doesn't jive well I guess. Anyways, let's get into examples, shall we? And no, I won't get into the Lamborghini/Ferrari endgame. Italian cars are crappy anyways. They catch on fire too often.
3 dollar coffees a month, that's 90 bucks. I go through about a bag of coffee a month, at $15 a bag of BRCC, I only save 75 a month. That's only 900 a year extra I have by being slightly snobbish about my coffee routine (french press or cowboy coffee it). Let's also do your eating out example, because habits are not in a vacuum, they're holistic and systemic. Most things I would want to eat at a restaurant are 15 to 20 bucks. I won't get into a decent steak or seafood because that's too easy to prove my point. Let's do, I dont know, chicken alfredo, I made that a week ago while babysitting my buddies kids. I spent like 25 bucks, but that included popcorn and icecream. So 20? This fed a toddler, 6 yr old, preteen and my own fat ass, with enough left overs for lunch the next day for everyone. If we went out, that's 15 for me and then 15 for the preteen and then another 15 to split between the younger ones. So 45 bucks. 25 dollar savings. However, there would have been no left overs. So let's say an extra 20 in savings, 45. Alright, to get just me on the savings, I'm thinking about 6 adult portions. 7.50 in savings per meal for myself when I want a fully proper dinner on average. You say 3-5 times you eat out a week. 4 for an easy average. That's 30 a week, 120 a month, 1440 a year. My average savings for not eating out and drinking crappy coffee is $2,340 a year as a single guy. $195 a month. Thats the advertised payment of a new Jetta. Choosing to be at the whim of someone who brews coffee like shit and people who over charge for super simple meals or doing things myself.
Let's nix the car. Let's think opportunity cost. Are you really maximizing your extra 10 minutes saved ordering dinner? Are you reading earnings reports or geopolitical negotiations? Maybe the latest white paper for next 5 minute programming fad? No. You're watching netflix. Stfu. I watch netflix and cook. Well, that and audible and curiosity stream. I also buy lots of books. And I do the occasional masterclass and random course online.
That extra 2k a year isnt enough to be a market mover. It is however enough to invest in yourself pretty well. Which goes all the way back to my immigrant comment. Your philosophy is investing in the market. That's dumb as hell especially when you're young. My philosophy, and most immigrant families that pinch pennies, is about investing in yourself. I think most people agree that a person's greatest investment is themselves, not outside endeavours. So yea, is that overpriced cup of coffee worth not investing in yourself?
Yes, you have better return on investments if you pay off that 20% interest credit card. But if you become unemployed, it is better to be able to have that fund so you can keep your house and the lights on.
This creates a margin loan, and then at your leisure you can sell your investments to pay the loan, only paying a few days worth of interest at most. Or you can keep the loan. The rates are far better than credit cards and there's no minimum payment or required repayment schedule. Interactive Brokers' current margin rate is 1.57%!
Also shouldn't discount overdrafts, pretty sure mine (as in, available to me) is <1.57% equivalent, and 'arranged' I believe they tend to be cheaper or at least much bigger.
Sitting on tens of thousands of dollars of cash (six months of income!) in a zero interest rate environment is a mistake that really compounds over the years -- to the point of a few $100k in lost appreciation over your career.
Equities are no longer hard to turn into cash in an emergency. You can pull money out of your investment account the same day using a debit card if need be, no need to even sell your equities.
Keeping access to credit, but not using it unless it's needed, is the better plan. But after several years of saving you won't need it anyway.
It’s about balancing risk management and wealth. That balance is going to be different for everyone, but you always need to be a little cautious.
Other than that you're right. Maintaining an emergency fund is expensive in term of opportunity cost. Like the cost of any insurance. There is no free lunch.
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Then never use it. There’s your emergency fund.
Critical thing is that you won’t get approved for one when you need it, so open it when you don’t.
I will say that his recommendation to buy in bulk is in some way an emergency fund (or an aspect of it) because you're saving money on things you know you'll buy in the future.
One thing I did when I lost a job was move some of my retirement account (roth IRA) to money market funds (from short term bonds). Basically moving some of the bond portion of my retirement from slightly risky to not risky/cash.
Roth IRAs let you pull out your contribution. This was basically to augment my emergency fund, just in case finding the right new job took longer than I thought. (I was lucky, it didn't, and I was able to convert the money market funds back to short term bonds).
Not a fan of pulling from retirement, but if I had to, better to take from the tax penalty free, stable portion of it.
I didn't comment on it because I'm living at home right now and am young/commitment-free enough to move back in with my parents if I ever need to - I don't have one so I feel I'm not qualified to discuss it.
Think of the sort of "adult expenses" your parents have - refrigerator failed and too expensive to repair, need to buy a new one - that will be $2,000, right now. My teeth need to be fixed - that will be $3,000. It's winter and the furnace broke - that will be $7,000. You want to be able to have the money on hand to deal with those situations. Those were not random examples - those are things that have come up for me in the last two years
You probably shouldn't have more than a few hundred dollars in an emergency fund if you're paying off high interest loans (10%+)
If you get fired you can live off severance and liquidate some of your investments.
This entire sentence is “top things the IRS has seen before and will not be amused by.” Sure, you can put this stuff on your Schedule C and get more money in your refund, but just wait until the IRS audits you in 5 years and determines that your family member is not engaging in activities that make them a legitimate employee, your living room is not a home office just because you have a desk in the corner, and since you’re making continuous losses and not operating in a “businesslike manner” your ‘business’ is actually a hobby; and then sends you a bill for back taxes plus interest and penalties.
(Sure, those are all actual deductions, but if your mindset is “legal tax evasion” and not “this is a business expense” you’re probably not qualified to take them.)
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Pretty poor advice imo, it's comparing a risky versus a risk-free return. Paying off a 7% interest nets you that return, guaranteed. Investing in a 7% stock market nets you that return on average, but it could be -30% that year, too. Volatility and risk requires compensation for it to simply be accepted. Where the threshold lies is hard to say, but I think it's much more sensible for example to pay off a 5% interest in lieu of investing in a volatile asset class that does 7% on average.
> If you have the space, buy products you're guaranteed to use in bulk on sale
That's true but, space comes at a cost, too. A square metre in a city costs about $6000. I'm not interested in buying 'years of supply of toilet paper' on sale and getting into the business of storage at the most premium price (residential real estate) level. Not a bad suggestion but shouldn't be in the top 50 I think, let alone as point nr 2.
Alright the rest is kinda of mediocre, not really worth going into. There's so much much better personal finance advice out there, even one-pagers out there, that this isn't really worth discussing.
You'd be right, but also consider than 7% is the real, not nominal, long-term return of the S&P500; the nominal (pre-inflation) return is 11%, and that's what you should compare to interest on debt.
This may be even fine if you have a well off dad that can support you during hard times. If you don’t have that yi7 will regret the debt for a long time.
I haven't seen concise one-pagers with advices, could you please share some links?
https://en.wikipedia.org/wiki/The_Index_Card
- Max your 401(k) or equivalent employee contribution.
- Buy inexpensive, well-diversified mutual funds such as Vanguard Target 20xx funds.
- Never buy or sell an individual security. The person on the other side of the table knows more than you do about this stuff.
- Save 20% of your money.
- Pay your credit card balance in full every month.
- Maximize tax-advantaged savings vehicles like Roth, SEP and 529 accounts.
- Pay attention to fees. Avoid actively managed funds.
- Make financial advisors commit to the fiduciary standard.
- Promote social insurance programs to help people when things go wrong.
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I think a better analysis would be to compare their personal strategy against a baseline one: ie, if they had invested everything from the beginning (including their NBA cards!!) in a total market index fund.
I think it is fine to engage in lots of strategies, including investing in individual stocks, but that should not be included in a portfolio recommended to others.
> Get used everyday (Ex. Nice pants, laptop and phone).
> Come in between you and the ground (Ex. Mattresses, chairs, winter tires).
Lately I've been hearing from friends and marketers "you use your mattress for 8+ hours a day so you should spend $2k on it" or something ridiculous like that. But I can't help feeling that it's bad advice.
You should decide to spend money when the marginal benefit that you get out of those extra dollars is higher than some threshold, that's it.
If you spend an extra $1500 on a mattress that isn't any better than a $500 one, then you've wasted $1500, regardless of how much time you spend sleeping on it.
On the other hand, maybe it's a good idea to spend an extra few thousand dollars on safety equipment for your woodsaw that you use for your occasional weekend hobby, if it means you don't lose a finger one day.
But yeah as you say, after a certain point it's diminishing returns. A Corolla will get you to work just as well as a Porsche, but that's not why people buy Porsches.
Even a $2000 mattress wouldn't be a giant expense compared to frequent & more expensive discretionary spending that people casually indulge in, such as new flagship smartphones or desktop CPUs/GPUs after 2-3 years, more than a single streaming video service or (God forbid) a car if bike+transit is a viable choice in your area.
Nowadays I'd go about mattresses a little different, but in the grand scheme of things? Not even a blip.
Buy for what you want, not what marketers are telling you;
Anecdotally:
$400 memory foam gel cooling mattress, firm is the best nights sleep I ever get and I miss it when I travel.
$90 ultra high performance summer tires are amazing for the autocross and track day, but are loud and high wear if I drove more than 5k miles a year.
Also, just in case anyone needs to hear this, starting your own company is not carte blanche to deduct all your living expenses, hire your spouse, etc. There's a lot of folk beliefs around this circulating on the internet, and following such advice without doing the legwork is a good way to get yourself into hot water with the IRS, or your local equivalent.
1. pay off CC debts
2. Set bill pay AND investment to auto. Invest in index funds
3. max out 401k
4. Google FI/RE movement if you want to be fancy.
Sure, there's a risk I might miss a payment and get dinged, but you're guarding against Comcast quietly raising your bill $25/mo, or not realizing how much you're truly spending on your credit card every month. Otherwise I agree with the list.
To avoid this, you need to know that you have enough at the correct time in the correct place, and if you're doing that, you might as well click through each payment yourself.
If you're in a tough spot, this also gives you the option to make partial payments against credit cards and incur some interest, which is almost universally a smarter choice than incurring an overdraft charge against your bank account.
I definitely missed it when Verizon upped my bill by $10 a month. But on the other hand I've never had a late fee and I get an hour back a month. So on net I'm positive money and time ymmv.
Don't use aws with a credit card you are responsible for.